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Sustainable Markets: How Will Global Pig Markets React to Changes in Russia?

22 September 2016

GLOBAL - In today’s interconnected, global economy, changes and events in one market can have worldwide implications. “Sustainable Markets” is a series of articles focused on market news and its impact on the economic and environmental sustainability of the global pork industry.

The Russian market has often been unpredictable for pig and pig-product traders around the world, reports Voice Of Sustainable Pork.

However, Russia’s embargo on pork products from some of the world’s leading producers has changed the face of the world market for pigs, pig meat and pig products.

Major producers and exporters in the EU such as Denmark, Germany, France, the Netherlands and Spain, together with the exporting giants of the US and Canada, were forced to look for new markets.

Eastern block

At the same time Russia has had to seek new sources to maintain stocks and meet domestic consumer demand, including developing domestic production on a more efficient and sustainable basis.

Russia’s embargo on pork imports from the EU began at the start of 2014 when Russian veterinary authorities disagreed with measures being used by the European Commission to control African swine fever after it had spread across the Russian borders to the Baltic states.

Further blocks were put on products from the US, Canada, Australia and Norway as well as the EU in retaliation to sanctions imposed because of the Russian role in the crisis in Ukraine and Crimea.

Between 2013 and 2014, Russia’s imports of pork plummeted to 372,000 tonnes — a 40 per cent drop — and gave the EU, Canada and the US incentive to find more stable and sustainable customers.

The US, in particular, saw one of the biggest declines in pork exports, going from a 2012 peak of 98,830 tonnes worth $281.75 million to just 1,346 tonnes worth $1.96 million last year.

Asian opportunities

The Western countries have largely turned to China and Southeast Asia to increase their exports and compensate for the loss of the Russian market, with the EU building trade deals in China and the US building exports to countries such as South Korea, Taiwan and Hong Kong.

South American producers — Brazil, in particular — have increased their exports to Russia.

Russia targets self-sufficiency

At the same time, with a declaration by President Vladimir Putin that Russia should become more self-sufficient in food production, the country has seen rapid growth in domestic production with good profits for the more efficient producers. Some are reported to be delivering a 25 per cent return on their investment each year.

The growth in production has also forced a change in the culture and methods of production.

The small, backyard producers, which used to be the backbone of Russian pig-meat production, are quickly declining in numbers to be replaced by large-scale producers with modern farms and equipment substantially backed by government grants and loans.

The Russian state policy of investment into domestic production to replace imports is seeing some of the top producers looking to double production over the next four to five years.

The leading pig producer in Russia, Miratorg, produces 3 million pigs a year and 290,000 tonnes of pork. To achieve this, it boasts that it has a production of up to 26.15 pigs per sow a year and a feed-conversion rate of 2.94 kg/kg.

Sustainable innovations

Miratorg is also using leading global genetics from companies such as PIC, Hermitage and Dan Bred.

The company says that a deep scientific approach and innovations in the production process ensure high indices.

Miratorg also stresses it has a target of sustainable production with a view to maintaining good environmental practices.

“All Miratorg Holdings’ pig farms are equipped with state-of-the-art treatment facilities and comply with the international environmental standards. The enterprises of Miratorg Agribusiness Holding were the first in Russia to obtain the permission to use manure from their own pig farms as organic fertiliser,” the company says.

The extension of the ban on imports from the EU is expected to continue to offer good rewards to the efficient Russian pig farmer as the growth in domestic production continues.

The switch to modern, large farms in Russia has also had the effect of increasing the biosecurity on the farms and has helped in the control of the spread of African swine fever, which was easily spread through the backyard production system, together with the wild boar population.

Eying exports

While domestic production is growing, Russia has still been forced to import to meet consumer needs.

In the first half of this year imports were growing, with Brazil being one of the largest suppliers. They had reached 119,300 tonnes — 17 per cent up on last year.

But with cost of production stabilizing in Russia and Brazilian exports being hit by a change in the exchange rate, Brazilian pork has become less competitive, and it is expected that there will be more reliance on increasing domestic production.

According to the Institute for Agricultural Market Studies (IKAR), the meat sector is expected to grow by 3.5 to 4 per cent this year.

IKAR says that with decreasing costs and increased investment with more enterprises under construction and pig breeding projects being completed, Russia could be in a position to be in surplus by 2019-2020.

With one eye on the potential for a surplus, some companies are also now starting to look at the potential of exports and they are viewing China as one destination.

With this in mind, the second-largest pig meat producer in Russia, Ros Agro, is building an export hub in the east of Russia in the Primorsk territory that borders China following the purchase of 25,000 ha of land and it aims to boost its current pork production capacity by at least 30 per cent by 2019.

The company will invest 72 billion rubles ($1.13 billion) and will produce 1.2 million pigs at this new enterprise.

Record growth

To make such expansion projects feasible and sustainable across the sector, pig farmers in Russia have called for more government support.

Speaking at the recent annual meeting of the Russian Pig Breeders Union, Yuri Kovalev said that there had been a record growth in industrialized areas of pig production because of the need to substitute imports with domestic production.

However, he added that to do this, it is necessary for the state to settle the arrears of investment loans and there is a need for more federal co-financing of projects. Regional support for pig production sites, genetic selection programmes, slaughter programmes, logistics and measures to counter African swine fever are also needed.

With domestic production, an emphasis on sustainability and exports to countries like China on the rise, Russia is poised to become an even more important player in the global pig market. The rise of Russia, combined with export opportunities for Brazil created by Russia’s embargo on EU, Canada and US pork products, is likely to result in a further rebalancing of the market in the years to come.